The new friendly offer for the North Carolina-based company was US$173 in cash per Salix share, up from the US$158 per share Valeant had offered earlier. Endo's bid was valued about US$175 in stock and cash.
The companies said Valeant's new offer valued Salix at about US$15.8 billion, including the debt that Valeant will assume.
In withdrawing its offer for Salix, Dublin-based Endo said it will pursue growth through other means.
"While we are disappointed with this outcome, we have been and will continue to be disciplined in our approach to potential acquisitions," Endo said in a statement.
The apparent victory for Valeant comes several months after it came up short in its hostile bid for Botox maker Allergan, which was eventually acquired by Actavis.
"This revised offer provides Salix shareholders with all-cash at a significant premium and the certainty to close by April 1," Valeant CEO Michael Pearson said Monday.
The April 1 closing date assumes a minimum number of shares are tendered. However, the offer drops back to US$158 per share if conditions of the offer have not been satisfied by April 8. The break fee has been increased by US$100 million to US$456 million plus fees.
Valeant (TSX:VRX) said Salix will be its largest acquisition and contribute modestly to its 2015 cash earnings per share, but add a 20 per cent boost in 2016.
The company is banking on the U.S. Food and Drug Administration granting approval for Xifaxan, a new Salix drug to treat irritable bowel syndrome with diarrhea.
Analyst Alex Arfaei of BMO Capital Markets raised his target price for Valeant to US$243 from US$234 on anticipation of more than 20 per cent earnings growth in 2016 and 2017 from the enlarged company and his belief there is a 90 per cent probability that the deal will close.
To help pay for the deal, Valeant said Monday that it was offering US$1.45 billion of common shares, plus an underwriter's option for an additional 15 per cent of the shares initially sold.
On the Toronto Stock Exchange, Valeant's shares closed at C$258.42, up $6.13 or 2.4 per cent in Monday trading. Salix shares closed up nearly two per cent while Endo shares were up 2.66 per cent on Nasdaq.